Family Business or Family Feud?

Legendary comedian W.C. Fields is credited with the line, “Never work with children or animals.” While a lot of people in television agree with him, in business there is an argument to say that you should never work with
family!

Family conflict is nothing new to business. German brothers Adolf and Rudolf Dassler founded a shoe company in a room of their mother's house in the town of Herzogenaurach in 1924 but it soon became apparent that they couldn’t work together. The relationship soured during World War II when Rudolf was sent to the front and on his return he was picked up by U.S. soldiers and imprisoned for about a year. He reportedly was convinced that his imprisonment was orchestrated by his brother and they split in 1948. Rudolf Dassler founded the company that would become Puma while Adi formally registered the Adidas brand in 1949. The rivalry between the brothers even divided the town of Herzogenaurach, where Puma and Adidas still have factories on opposite sides of the river.  Closer to home, the feud between Bob Jane and his son Rod recently hit the headlines again.

Who will take over the reins of family business?

Money might be the root of all evil but poor communication between generations can be cancerous in a family business.  For example, a recent report suggests that many families simply assume that the children will take over the business.  Of the 320 family owned businesses surveyed, 93% of the CEOs were intending to transfer ownership within the family and only 7% planned to hand over to outsiders (sell the business).  The survey also found that 38% of the respondents intend to transfer wealth within the next five years, 16% within 1-3 years and 16% didn’t know.  Despite these statistics, only 39% have a succession plan in place.

The dynamics of running a family business are very different to publicly owned businesses. For example, the average tenure of a CEO is six years while many family businesses have the same leaders for 20 or 25 years. In some cases this could mean the business could struggle to adapt to changes in technology and consumer behaviour.

Guidelines For Employing Family Members

Family businesses face some unique challenges. The key recruitment method is often relationship driven rather than the normal candidate assessment process. Paying family a generous salary is tempting but non-family employees might get the message that nepotism pays better than performance.  They might think that no matter how much effort they put in they will never be compensated as well as the family members.  Eventually staff will leave because they recognise it is not a ‘level playing field’.  Some children feel obligated to join the business while some parents demand they join. This can backfire because you can end up with a batch of managers who aren’t really interested in working in the business.  Family members can also become trapped in the business because even if they hate their job, they know they can’t attract the same level of compensation in the open market.

It’s natural for the next generation of family members to join the business at a relatively young age. This early exposure will help them make an informed career decision but a job in the business shouldn’t be a birthright and we recommend you put some guidelines in place including:

Prior to employing

1. Obtain impartial advice—refer to an advisory board or consult with other family business owners.
2. Have written guidelines and all staff, including family members must sign and adhere to them.
3. Family members must have at least 2 years prior work experience before commencing work in the family business.

After the Hire

1. Performance Reviews need to be conducted regularly and honestly.
2. Insist on further training and education with a focus on enhancing the family member’s skills.
3. Have the courage to fire the family member if they are under performing.
4. Ask yourself if you sold your business today, who would the new owner keep and how much would they pay them?

Click HERE to download the full edition of The Business Accelerator Magazine for June 2013.

Other articles in this edition:

• 2013 Budget Overview
• 2013 Individual Tax Return Checklist
• 2013 Companies, Partnerships, Trusts & Other Business Tax Checklist
• Personal Taxation - 2013
• Superannuation - 2013
  
• Tax Compliance - 2013
• Business Taxation - 2013
• $17 Billion ‘Lost’ – Is Some of it Yours?
• Facebook For Business
• ATO Data Matching Update